Page 2 - Discussion Paper: Sustainability Dynamics of Resource Use and Economic Growth
P. 2
Discussion Paper
coupled with the paradigm of continued growth can and degradation, deforestation, climatic changes (Montgomery
has resulted into the over exploitation and degradation of 2007; Chew 2001; Tainter 1990). The economic process of
natural resources, including those that are renewable in growth in consumption of resources is a natural progression
nature (Millennium Ecosystem Assessment 2005). Unless of an economy moving from cheap and easy to the difficult and
these resources are infinite their consumption will result in costly to extract resources. This process takes the economy
high subtractability,2 leading to severe resource depletion and towards its limits to growth. The natural preference of nascent
ultimately resource exhaustion (Ireland 2013). Therefore, economies is usually to begin with the most feasible resources
one of the key challenges is to maintain a sustainable stock available for extraction (Tverberg 2013). Gradually as the
of resources. This is particularly difficult in an economic economy expands, these resources begin to deplete and over
system where consumption and production are considered the years deplete faster than they can regenerate themselves.
very likeable elements to measure the success and growth After years of extraction, the economy is left with less of these
of the economy (Boulding 1945). If the resources are not resources, making it increasingly difficult for them to extract.
managed well, it could lead to their irreversible decline. This This raises the cost of extraction, thus making previously
in turn could result into an economic contraction or sustained feasible resources uneconomical. The economy now migrates
economic depression (Tverberg 2013). Such impacts of to explore previously unfeasible resource options, thus making
resource depletion on the economy seem implausible due the extraction and production expensive. As costs continue
to long-time delays involved from the declining stock of to soar and extraction limits are reached, the economy finds
resources to the decrease in the flow of goods. However, it is it difficult to sustain the level of output. This indicates that
only prudent to have proactive economic policies which could economic limits would restrict the resource extraction much
avoid such impacts and foster a balance between economy before the resources are completely exhausted, but not
and resources. before the depleting resources have already created a delayed
feedback on the economy with a potential to cause economic
In this paper, we view economic growth and resources contraction. Unless the economic policies are proactive and
from a systems perspective to learn how the delayed sensitive towards the state of resources, the resources would
feedback effects from resource depletion will impact the continue to deplete until their binding constraints are reached
growth of the economy in the long run. It highlights, in a which would restrict the economy’s growth.
simplified manner, the hidden perils of blindness towards this
slow feedback from decline in renewable natural resources to Research Methodology
the production of goods in the economy.
System Dynamics
Our study is based on the following three postulates which
we test through the modelling exercise. Given the complexity involved in the interactions between
A stock of renewable resources with a defined carrying economy and resources, the problem of management of
resources must be seen through the lens of complex
capacity would pose binding constraints on the economy systems. Unlike optimizing problems, which lend
to sustain its growth. themselves to analytic solutions, complex systems may
Once these constraints, in form of limits to resource be best understood using dynamic simulation techniques
extraction, are reached the economic GDP will peak and (Hoffman 2010).
decline.
This peak and decline would arrive much after the Long-term simulations of the relationship between
resources have already crossed their irreversible decline economy and resources could provide useful insights about the
threshold. binding constraints of resources (Hoffman 2010). System
dynamics (SD) is an approach best suited to understand such
Resource Extraction and Economic Limits non-linear behaviour of complex systems over time using
stocks and flows, internal feedback loops, and dynamic rates
Studies suggest that the trend of collapse of some of change (Massachusetts Institute of Technology MIT). The
economies and civilizations (e.g. Easter Island, methodology was conceived in the late 1950s at the MIT
Sumerians, etc.) have been a phenomenon driven mainly due by Jay Forrester (Forrester, 1961, 1969). SD as a modelling
to environment degradation and resource limits (Tverberg discipline holds the potential to unveil the impish nature
2013). For instance, until fossil fuels came into widespread of complex systems and uncover the relationships
use, civilizations regularly grew within their finite spaces before between variables which are responsible for behaviour of
they collapsed due to factors like those of ecological stress, soil the system. It also provides the reader with an opportunity
to go through the model structure and study the
2 The degree to which one person’s use of resource diminishes other’s
use.
2 AUGUST 2015
coupled with the paradigm of continued growth can and degradation, deforestation, climatic changes (Montgomery
has resulted into the over exploitation and degradation of 2007; Chew 2001; Tainter 1990). The economic process of
natural resources, including those that are renewable in growth in consumption of resources is a natural progression
nature (Millennium Ecosystem Assessment 2005). Unless of an economy moving from cheap and easy to the difficult and
these resources are infinite their consumption will result in costly to extract resources. This process takes the economy
high subtractability,2 leading to severe resource depletion and towards its limits to growth. The natural preference of nascent
ultimately resource exhaustion (Ireland 2013). Therefore, economies is usually to begin with the most feasible resources
one of the key challenges is to maintain a sustainable stock available for extraction (Tverberg 2013). Gradually as the
of resources. This is particularly difficult in an economic economy expands, these resources begin to deplete and over
system where consumption and production are considered the years deplete faster than they can regenerate themselves.
very likeable elements to measure the success and growth After years of extraction, the economy is left with less of these
of the economy (Boulding 1945). If the resources are not resources, making it increasingly difficult for them to extract.
managed well, it could lead to their irreversible decline. This This raises the cost of extraction, thus making previously
in turn could result into an economic contraction or sustained feasible resources uneconomical. The economy now migrates
economic depression (Tverberg 2013). Such impacts of to explore previously unfeasible resource options, thus making
resource depletion on the economy seem implausible due the extraction and production expensive. As costs continue
to long-time delays involved from the declining stock of to soar and extraction limits are reached, the economy finds
resources to the decrease in the flow of goods. However, it is it difficult to sustain the level of output. This indicates that
only prudent to have proactive economic policies which could economic limits would restrict the resource extraction much
avoid such impacts and foster a balance between economy before the resources are completely exhausted, but not
and resources. before the depleting resources have already created a delayed
feedback on the economy with a potential to cause economic
In this paper, we view economic growth and resources contraction. Unless the economic policies are proactive and
from a systems perspective to learn how the delayed sensitive towards the state of resources, the resources would
feedback effects from resource depletion will impact the continue to deplete until their binding constraints are reached
growth of the economy in the long run. It highlights, in a which would restrict the economy’s growth.
simplified manner, the hidden perils of blindness towards this
slow feedback from decline in renewable natural resources to Research Methodology
the production of goods in the economy.
System Dynamics
Our study is based on the following three postulates which
we test through the modelling exercise. Given the complexity involved in the interactions between
A stock of renewable resources with a defined carrying economy and resources, the problem of management of
resources must be seen through the lens of complex
capacity would pose binding constraints on the economy systems. Unlike optimizing problems, which lend
to sustain its growth. themselves to analytic solutions, complex systems may
Once these constraints, in form of limits to resource be best understood using dynamic simulation techniques
extraction, are reached the economic GDP will peak and (Hoffman 2010).
decline.
This peak and decline would arrive much after the Long-term simulations of the relationship between
resources have already crossed their irreversible decline economy and resources could provide useful insights about the
threshold. binding constraints of resources (Hoffman 2010). System
dynamics (SD) is an approach best suited to understand such
Resource Extraction and Economic Limits non-linear behaviour of complex systems over time using
stocks and flows, internal feedback loops, and dynamic rates
Studies suggest that the trend of collapse of some of change (Massachusetts Institute of Technology MIT). The
economies and civilizations (e.g. Easter Island, methodology was conceived in the late 1950s at the MIT
Sumerians, etc.) have been a phenomenon driven mainly due by Jay Forrester (Forrester, 1961, 1969). SD as a modelling
to environment degradation and resource limits (Tverberg discipline holds the potential to unveil the impish nature
2013). For instance, until fossil fuels came into widespread of complex systems and uncover the relationships
use, civilizations regularly grew within their finite spaces before between variables which are responsible for behaviour of
they collapsed due to factors like those of ecological stress, soil the system. It also provides the reader with an opportunity
to go through the model structure and study the
2 The degree to which one person’s use of resource diminishes other’s
use.
2 AUGUST 2015
